Net-heads rejoice!: The Canadian branch of the Internet Society salutes the CRTC’s Internet Policy Decision

The Internet Society, Canada Chapter, (the ISCC) believes that the CRTC’s ruling on differential pricing practices promotes a free, open, and accessible Internet in Canada. We heartily applaud it. The Commission has definitely embraced Internet-centred thinking.

The issue concerns how much freedom a carrier has to shape consumer usage of the Internet by pricing some things more favourably than others, and thereby shifting consumer usage to products and services favoured by the carrier. This is called differential pricing, “zero-rating” or “sponsored data”.

Critics of the practice argue that it tilts the competitive playing field unfairly and that it interferes with people’s freedom to use the Internet for their own purposes. For example, cell phone providers have experimented with differential pricing in the past by offering their customers unmetered use of select video, music, or social media apps, while continuing to count other similar types of Internet content (ones with which the provider has not struck an agreement) against a meter or monthly limit. Supporters argue that differential pricing helps ISPs differentiate themselves from the competition and that they amount simply to a harmless and beneficial discount for consumers.

Placing users in the driver’s seat

The CRTC’s new framework establishes that the carrier has to be agnostic among uses and users of the Internet. The principle is called “network neutrality.” In its framework, the CRTC explicitly recognizes that the Internet “has become a critical resource in modern life” and that carriers are “uniquely situated as the link between Canadians and the online world.” The CRTC determined that the public interest will be best served by strongly discouraging carriers from using discriminatory pricing to favour certain ways of using the Internet over others.

Instead, it has opted to place users rather than carriers in the driver seat. The Commissions will ensure that the price to transmit a bit remains the same whatever its nature or destination, and regardless of any agreements between carriers and content providers. With this decision, the CRTC has committed to upholding network neutrality principles, which, in its view, “have been instrumental in enabling the Internet to grow and evolve as it has.”1

A Canadian approach to net neutrality

The Commission’s approach to differential pricing is based on longstanding legal principles. Together with several related policies and decisions, the Commission has taken a comprehensive and distinctly Canadian approach to network neutrality.

Like its 2009 approach to ISPs’ use of “internet traffic management practices” (throttling or slowing users’ Internet connections), the CRTC stopped short of an outright ban on discriminatory pricing, opting instead for a complaints-based process. However, a heavy onus has been placed on any carrier to prove that the potential benefits of a differentially priced service outweigh the downsides.

The CRTC concluded that allowing the practice of differential pricing to operate unrestricted would likely have a negative impact on competition, innovation, consumer choice, access and affordability, and privacy. Various commenters (Michael Geist, Dwayne Winseck, Timothy Denton, Fasken Martineau, Peter Nowak) have lauded not just the outcome, but the logic and reasoning that supports it.

Several aspects of the framework strike us as having particularly important implications for Internet users/communications in Canada.

First, the CRTC found that differential pricing practices are neither competitive nor innovative.

Although the CRTC did recognize that differential pricing “can be attractive for some consumers”, on balance it rejected the notion that it is competitive, and instead expressed a preference for competition based on price- and network quality-based rather than marketing gimmicks.

The Commission reasoned that the ISP market in Canada is concentrated – a handful of firms account for 85% of revenues (in the wireless sector, where differential pricing has been most prevalent, the leading three firms account for roughly 90% of revenues). Differential pricing is a marketing gimmick, not an innovation, and it tends to favour large, established firms over new entrants or start-ups. It imposes technical costs on network provision and for participating service providers. In other words, the downsides far outweigh the benefits. The Commission observed “these practices do not make new content or services available to consumers online. They merely serve to entice consumers to access the content of providers selected by ISPs.”

Second, innovation without permission

The CRTC decision affirms that Internet innovators do not have to ask permission from telecommunications carriers to reach their markets or audiences. The CRTC was clear: marketing gimmicks are not a substitute for price competition and Internet innovation.

Third, broadcasting policy will not shape Internet policy

The decision explicitly rejects the use of broadcasting policy ideals to shape its Internet policy.

While it acknowledges that zero-rating or other similar pricing schemes could promote Canadian broadcasting, the decision is finds that “any short-term benefits of differential pricing practices would be greatly outweighed by the negative long-term impacts on consumer choice if ISPs were to act as gatekeepers of content through their use of such practices.”

Carriers have no business steering their consumers toward one online content source over another. The open Internet affords users the power to make those choices for themselves, without undue interference from third parties. By contrast, gatekeeping is the hallmark of the broadcasting industry, and the CRTC is clear in its conviction it is not willing to sacrifice the fundamentals in one for marginal benefits to the other.

This is good news for people who value the Internet. Broadly speaking the Commission’s approach here confirms (for the time being) that it will not apply broadcasting regulation to Internet service providers. This is consistent with a growing body of case law that sees Internet service providers as neutral conduits of information that exist to carry information for their users without undue interference, whether from advertisers or others.

1 In the regulator’s own words, its framework “supports the freedom of consumers and citizens to access the online content of their choice without being unduly influenced by the marketing strategies and pricing decisions of ISPs with respect to the transmission of specific content. It also supports the ability of all content providers to innovate and encourages ISPs to compete and innovate based on the capabilities of their networks, as well as to offer a range of speed- and volume-based data packages to provide better choices to Canadian consumers”.